Multifamily Prepares for a Rate Hike
In January, multifamily industry experts were still anticipating rate cuts later in the year. Eight months later, the crystal ball looks very different. Rising oil prices and persistent inflation have shifted expectations, with Fed funds futures pricing in a 92 percent chance of a September rate hike as of Monday, according to J.P. Morgan Asset Management.
If a rate increase happens at the meeting tomorrow, it would be the first increase since July 2023, when the Federal Open Market Committee raised the range by 25 basis points to 5.25 percent to 5.5 percent. Since then, the range has gradually declined to 3.5 percent to 3.75 percent, where it has remained since December 2025.
Industry sources are also largely expecting a 25-basis-point increase. Joe Biasi, head of commercial capital markets research at Newmark, said the firm anticipates a hike Wednesday, while several other multifamily experts said the size of the move matters less than what it signals about the path of rates.
Ian Symington, vice president of acquisitions at Lion Real Estate Group. Image courtesy of Lion Real Estate Group
When higher for longer gets longer
A 25-basis-point increase—much like a reduction of the same size—is unlikely to have much immediate impact on multifamily investment, according to industry experts.
“If the sentiment is that we are going to run higher for longer, that is more impactful than a rate hike,” Ian Symington, vice president of acquisitions at Lion Real Estate Group, told Multi-Housing News.
If borrowing costs remain elevated or continue to rise, Symington said less capital could flow into commercial real estate as investors look to alternatives with less exposure to interest-rate risk. The environment could also increase refinancing pressure on maturing loans originated in 2021 and 2022.
Symington said Lion has already seen lender-driven transactions, though many involve older assets with weaker operations in less desirable locations. He expects more opportunities to emerge over the next 12 to 24 months.
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That pressure is also beginning to affect how properties come to market. Ivan Barratt, CEO of BAM Capital, said the bid-ask spread is beginning to close from the seller side as owners become more motivated to sell assets.
Ivan Barratt, CEO of The BAM Cos. Image courtesy of The BAM Cos.
Barratt said some multifamily deals that were priced more aggressively a year ago are now going to market as loan maturities approach, with sellers more willing to adjust pricing in order to close.
Barratt pointed to a 300-plus-unit community that BAM is currently under contract to acquire in a coastal Southeast market at roughly 80 percent of its replacement cost. He attributed the opportunity not to problems with the property itself, but to a capital structure that had “run out of road.”
As owners continue to face these pressures, one of the first places a rate increase could show up is in multifamily transaction activity. Consequently, Biasi expects transaction volume will slow.
Investors recalibrate
Even if Wednesday’s meeting brings a rate increase, Jon Siegel, chief investment officer & co-founder of RailField, does not expect this to be another cycle of rate tightening like it was in 2022.
“In general, neither we nor the market like uncertainty, and I think that the immediate implication will be more inactivity as everyone tries to recalibrate,” Siegel said.
Jon Siegel, chief investment officer and co-founder of RailField. Image courtesy of RailField
He does expect there to be some uncertainty surrounding the rate path. Fed Chair Kevin Warsh stated in his Aug. 28 Jackson Hole speech that forward guidance should play a more limited role in normal economic conditions.
For RailField, Siegel said this means the company will put more weight on property fundamentals. He listed lease-trade-outs as one of the most important data points the firm will be watching to help make investment decisions.
The adjustment is already showing up in underwriting. Symington said that interest-rate buffers are necessary in the bidding and underwriting process. Lion is also assuming both interest-rate and cap-rate expansion when evaluating deals.
On the lender side, Brett Forman, founder and CEO of Forman Capital, said higher rates could make it more difficult for borrowers with floating-rate debt to meet debt-service coverage requirements and cover loan payments with adequate property cash flows.
Forman said the possibility of another rate increase is “largely priced into the mindset of multifamily operators.”
Siegel sees variable-rate loans with short durations as the most vulnerable if rates continue to rise, as borrowers face higher costs and refinancing risks as maturities come due.
Institutional investors are also adjusting their risk appetite in the current rate environment. Uma Moriarity, senior investment strategist and global head of sustainability at CenterSquare Investment Management, told MHN that the firm remains active in multifamily through preferred equity and mezzanine debt in Class A properties, but is being more selective about taking direct equity risk.
“For us to take equity risk in the sector, we would have to see pricing adjust to reflect the reality of today’s environment and/or fundamentals really start to improve,” Moriarity said.
Source: MHN